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This Is Just the Beginning
10/29/2009 9:58 am EST
Mark Skousen, editor of Forecasts & Strategies, says historical data point to a strong market for the rest of 2009 and the years to come.
My "crazy" prediction of the Dow Jones Industrial Average reaching 10,000 this year [has come true, although] the Dow has retreated slightly today, but not for long.
In the March issue of Forecasts & Strategies, I published a chart (from Jeremy Siegel of the Wharton School) showing that, on a long-term basis, the stock market looked like a “screaming buy.”
At the time, when the Dow was under 8,500, most of my subscribers had serious doubts about this forecast. We did a teleconference in May and asked how many subscribers agreed with me, and only 20% said “yes.”
I made three arguments for a higher Dow:
1. The Federal Reserve’s “zero” interest rate policy (what analysts call ZIRP) and an expanding money supply. I believe 2009 is witnessing a ZIRP rally. The Fed has said that it will continue ZIRP until the economy returns to normalcy and the Fed can safely raise rates to their natural level. (ZIRP could last for several more months.)
The adjusted monetary base (the Fed’s checking account) doubled in late 2008, then leveled off for eight months in 2009, but recently has started moving up again.
2. President Obama has joined [Fed Chairman] Ben Bernanke and encouraged an expansionary fiscal policy. His stimulus package and massive deficit spending favors bailing out bad mortgages and bad assets in the economy.
"Essentially, the government is putting a floor under the real estate market, which will keep it from collapsing any further,” I said at the Las Vegas MoneyShow [in May].
Indeed, the evidence suggests that housing sales and pricing have stabilized in recent months.
3. Historically, stocks do extremely well following a major crisis, as they did in the mid-1930s, the inflationary 1970s, and 2001-02. According to Jeremy Siegel, author of Stocks for the Long Run, every time the market hits bottom after a crash, the rally can be quick and powerful. After a major bear market, stocks on average rebound 24% during the first year of recovery. And the average annual return over the next five years is 18%.
But what about now? Is it too late to get aboard?
So far this year, the Dow is up 14%. That means that the Dow could exceed 11,000 by year-end if it recovers from the bear market by the average 24%, according to Siegel’s research. Moreover, it could reach 15,000 over the next four years, according to Siegel’s charts.
[So,] now is not the time to take profits. I expect to see our stocks, funds, and natural resource investments move higher. The Dow reaching 10,000 and the price of gold passing $1,000 are just the beginning!
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